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The shortfall increased by 25 percent in fiscal year 2015, to $24.1 billion, the Pension Benefit Guaranty Corporation said in its annual report, released Nov. 17. That, along with a 23 percent rise in the multiemployer plan program's deficit, resulted in a record-high $76.3 billion shortfall for both programs combined.

Kathryn L. Ricard, senior vice president for retirement policy at the ERISA Industry Committee in Washington, told Bloomberg BNA Nov. 18 that the PBGC went to “great lengths in the report to show that the increase in the single-employer plan program deficit was due to actuarial adjustments and to a dip on the investment side” and wasn't a “reflection of the lack of strength” in that program.

The agency said actuarial adjustments cost the single-employer program $849 million more in 2015 than in the previous year and that investment income fell by 95 percent, to $324 million, from $6.4 billion in 2014. Investments were hit by a $1.2 billion loss on equity securities and a $2.1 billion drop in gains on fixed maturity securities.

The American Benefits Council said that its concern was more that “policymakers may be tempted to use these deficits as justification for the constant hikes in insurance premiums paid to the PBGC by plan sponsors.”

The Nov. 17 statement, from Lynn D. Dudley, the ABC's senior vice president for global retirement and compensation policy, urged policy makers to reject the impulse to raise insurance premiums “for the sake of pension plan sponsors and participants.” Dudley said that “continued premium increases, like those just enacted as part of the Bipartisan Budget Act, will only compel healthy plans to exit the system, leaving a dwindling premium base and creating a death spiral for the PBGC.”

Congress approved increases in single-employer premiums in October, the third hike passed since 2012.

Single-Employer Health

Dudley said that her group's “studies of the PBGC’s finances show that the single-employer pension system is healthy and in no danger of default, and the PBGC’s own projection report estimated that the single-employer program's deficit would shrink to roughly $4.9 billion in 2024.”

In its FY 2014 PBGC Projections Report, released in September, the PBGC projected that it was “highly unlikely” that the single-employer plan's assets would be depleted in the next 10 years.

PBGC Calculation Formula Questioned

“We have often noted that the agency’s snapshot deficit calculation is opaque and does not accurately reflect the long-term health of the PBGC,” Dudley said.

Ricard agreed.

There weren't any “huge payouts or huge exodus” from single-employer plans during the year, Ricard said. Instead, she said, the deficit increase was primarily the result of the formula used by the PBGC to calculate its deficit.

The PBGC said in the report that the increase in the single-employer program's deficit was largely due to “interest factors” that increased liabilities. The interest factors are used to measure the value of future benefit payment obligations, and are calculated using a mortality table and recent annuity prices.

The PBGC's formula doesn't match what the business community uses to calculate deficits, Ricard said. For example, the PBGC's use in its formula of the market price of annuities doesn't make any sense since the agency is actually the insurance carrier and would be the entity making the payments, she said.

To contact the reporter on this story: David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor responsible for this story: Phil Kushin at pkushin@bna.com

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